- Fed keeps QE unchanged
- ECB addresses concerns on bank reviews
FTSE 100: 1.42%
CAC 40: 1.25%
FTSE MIB: 1.48%
IBEX 35: 1.39%
Stoxx 600: 1.21%
European stocks surged after the Federal Reserve surprised investors by keeping its monetary stimulus measures unchanged.
The central bank's Federal Open Market Committee (FOMC) decided to maintain its $85bn of monthly asset purchases, saying that mortgage rates have risen further and fiscal policy is "restraining economic growth".
In its report, the Fed said it decided to wait for more evidence of recovery before scaling back quantitative easing as part of its effort to foster employment and price stability.
"Accordingly, the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40bn per month and longer-term Treasury securities at a pace of $45bn per month," the FOMC said following its two-day policy meeting.
"The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction."
Economists had expected the Fed to announce a tapering of between $10bn to $15bn per month.
ETX Capital Market Strategist Ishaq Siddqi predicts the Fed Chairman Ben Bernanke will announce a trimming its bond buying programme at the end of the year.
"Bernanke had his chance to fire the first round but held back," he said. "His reasons appear to be valid; there's going to be a big fiscal showdown in US Congress over the new budget to lift the debt ceiling. That said, Bernanke is on his way out with a new Fed president replacing him at the start of 2014.
"Given that market participants were prepared for tapering and that logically, it would have been sensible for Bernanke to start the taper ball rolling, I feel the Fed failed to seize on the opportunity to send the market a strong message by withdrawing its favourite drug."
"Risk sentiment may have got a nice kick up after the Fed meeting but the momentum behind this rally is certainly not credible, just like the Fed's reputation at the moment."
ECB fears bank stress tests will deter investors
The European Central Bank is worried investors might be put off by its reviews of banks next year when it takes over supervision of all euro-area lenders, if not timed well.
The ECB will conduct a risk review, analyse banks' balance sheets and implement stress tests in collaboration with the London-based European Banking Authority.
The central bank is trying to avoid releasing conflicting numbers at different times, particularly for banks that are financially unstable, at risk of deterring investors.
ECB Executive Board member Peter Praet and Governing Council member Ewald Nowotny said two companies must avoid giving different estimates of how much extra capital banks will need to raise.
"Probably the stress test has to be integrated in the balance-sheet assessment, because you don't want to come with one figure per bank, with the possibility of a recap, and then come later on with the stress test," Praet said in London this week.
Miners rally as gold extends gains
Randgold Resources and Fresnillo advanced as the price of gold rose on Wednesday.
ThyssenKrupp gained after Steinbrueck, who leads the opposition party Social Democrats, said it was "imperative" to prevent a break-up of the German steelmaker.
Cie. Financiere Richemont, which owns the Cartier brand, rallied after a report showed watch exports rose 0.5% in August from a year earlier.